Work

No reliance on guidance: counter‐signaling in management forecasts

Year: 2021

Type: article

Abstract: This study presents and provides an explanation for a novel stylized fact: both high‐performing and troubled companies withhold issuing earnings guidance. We assume that the manager's ability affects the level of earnings and the accuracy of guidance, but issuing a forecast is costless for all manager types. Managers are thus able to signal their ability through accuracy in their forecasts. While high ability managers would seem to benefit the most from issuing guidance, in equilibrium we find that both high and low ability managers withhold issuing guidance, while intermediate types forecast. Hence, high ability managers counter‐signal in equilibrium, which does not result in a subsequent “punishment” by the market.

Source: The RAND Journal of Economics

DOI: 10.1111/1756-2171.12367

Authors: Cyrus Aghamolla, Carlos Corona, Ronghuo Zheng

Institutions: University of Minnesota, The Ohio State University, The University of Texas at Austin

Language: English

Topic: Auditing, Earnings Management, Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W3136057679

FWCI: 7.556

Cites: 43

Cited by: 24

Related to: 10